Jakarta: Adani group plans to invest in a $1.6 billion coal railway project in Indonesia’s South Sumatra province, a government official said on Wednesday, providing funding for much-needed infrastructure.
While Indonesia has abundant natural resources, including coal, oil and gas, lack of investment in exploration and infrastructure such as railways, roads and ports for the transport and shipment of key commodities has limited the scope for extraction and development.
The island of Sumatra, which includes South Sumatra province, has 11.5 billion tonnes of mineable coal reserves — or 57% of the country’s total mineable reserves of 20 billion tonnes, according to data from the energy and mines ministry.
But the province only produced 11.5 million tonnes of coal in 2009, because of poor transportation.
The new 270-kilometres (168 miles) railway will be an addition to another railway project which is being developed by state-owned miner PT Perusahaan Batubara Bukit Asam.
Alex Noordin, governor of South Sumatra, said the railway project will require total investment of $1.6 billion including a coal terminal.
“The coal terminal will have the capacity to handle 50 million tonnes of coal. Bukit Asam will supply around 34 million tonnes,” Noordin said.
Bukit Asam has said it plans to increase its output to 50 million tonnes a year within five to six years by buying new mines and developing a new railway.
The state miner, which also plans to develop its own 307-kilometre railway line from Tanjung Enim to the port of Lampung in partnership with the Rajawali group, may also benefit from being connected to the new provincial railway project, which will connect Tanjung Enim to Tanjung Api-Api, near another port.
Diversified Adani Enterprises, which controls Indian power utility Adani Power, may sign an offtake agreement for coal supply with Bukit Asam in exchange for financing the railway, said Gita Wirjawan, Indonesia’s investment chief.
The railway project is expected to start next year and may be completed in four years, he said.
Earlier this week, a spokesman for Indonesia’s vice president said that Indian power utility Reliance Power is considering investing as much as $5 billion in a coal railway, coal mines and a power plant, also in South Sumatra.
Indonesia’s Kalimantan, on Borneo island, accounts for most of the remaining coal produced by Indonesia, the world’s top thermal coal exporter, and is also seeking investments in coal railway projects.
Southeast Asia’s biggest economy has seen a steady pick up in investor interest over the past 18 months, thanks to a combination of political stability and improving economic growth sustained by strong domestic consumption and demand for commodities ranging from coal to palm oil.
For years, foreign investors shunned Indonesia in favour of China, India and Vietnam, citing its poor infrastructure, red tape and graft.
Now steel giants ArcelorMittal and POSCO, and sovereign wealth fund China Investment Corp are eyeing new production plants and investment in the resources sector, Indonesian government officials have said.